"Funds are much safer than betting on China's casino stock market," says Wang, 72, who reckons fund managers pick stocks better than he does.

Assets managed by Chinese mutual funds jumped 83 percent last year, helping drive benchmark indexes to records and prompting regulatory warnings that investors are ignoring risks. With many funds buying the same stocks, the boom has done little to diversify holdings, says Gabriel Gondard at Fortune SGAM Fund Management Co., a venture of Paris-based Societe Generale SA.

"Many new investors still don't know how to manage risk, and we need to prevent another crash,'' says Zhu Jian, the Shanghai- based director of the China Securities Regulatory Commission. "We want to hit the brakes a bit."

The Shanghai Stock Exchange Composite Index fell 55 percent from June 2001 to July 2005 as regulators investigated companies for falsifying financial results and cracked down on illegal bank loans used to buy stocks.

The broader Shanghai and Shenzhen 300 Index, introduced in 2005, has dropped 7.1 percent since Jan. 30, when Cheng Siwei, vice chairman of the National People's Congress, said investors may lose money on more than two-thirds of Shanghai-listed stocks. The index gained 121 percent last year.

"We need to improve corporate governance and risk management,'' Cheng said at a conference in Dubai.

Assets Soar

Investors pumped 387 billion yuan into Chinese funds in 2006, pushing assets under management to 856 billion yuan, according to Shanghai-based research firm Z-Ben Advisors, Ltd. A fund introduced by Harvest Fund Management Co. -- in which Deutsche Bank AG holds a 19.5 percent stake -- received a record 40 billion yuan from investors on Dec. 7.

Invesco's Great Wall Domestic Demand Growth Fund is the best performer in China over the past 12 months, returning 184 percent, according to data compiled by Bloomberg.

Money began flowing into funds after China in May 2005 announced plans to make more than $200 billion of state-owned stock tradable. The market got another boost last year as big companies such as China Life Insurance Co. and Bank of China Ltd. sold shares.

`Healthier Structure'

The Securities Commission this week approved the sale of new equity funds for the first time since December.

First State Cinda Fund Management Co. plans to start marketing a new fund by early March after receiving permission on Feb. 6, says Li Kenan, general manager of the firm, a venture of Colonial First State, Australia's largest money manager.

The Commission had slowed approvals without telling firms why, says Zhang Shuntai, who oversees the equivalent of $127 million at Zhonghai Fund Management Co. in Shanghai.

Sun Jie, the Beijing-based commission's director for fund management, declined to comment on the agency's approval policy.

``Mutual funds are relatively new to China, so the market's framework and regulations still aren't complete,'' he says.

Regulators may be trying to push investors into more established funds focused on producing steady returns, instead of new offerings promising quick profits, says Gondard, who manages the equivalent of $2.4 billion at Fortune SGAM in Shanghai.

``The government wants a healthier structure for China's fund market,'' he says. ``There's no point to roll out so many new funds offering the same products and investment processes.''

Chinese funds are limited to investing in rising stocks.

Regulators planned to allow bets on falling prices through stock index futures early this year, Securities Commission Chairman Shang Fulin said in October. Last month, he said the investments would be introduced only under ``mature conditions.''

Investor Confidence

China first set rules for the fund industry 10 years ago. Overseas firms have been encouraged to create joint ventures to promote long-term investing rather than speculative trading.

"JV funds help boost Chinese investors' confidence in the industry by bringing credibility and a more fundamentals-driven investment style,'' says Rico Cheung, who manages the equivalent of $322 million at Shanghai-based Franklin Templeton Sealand Fund Management Co.

Overseas ventures held 40 percent of fund assets on Dec. 31, up from about 30 percent a year earlier, says Joseph Ngai, a Hong Kong-based consultant at McKinsey & Co.

Working against long-term investment is the opportunity for investors to make quick profits.

"It's increasingly hard to tell people not to put all their assets into equities," Gondard says. "Even China's institutional investors tend to have shorter time horizons.''

Onus on Firms

Responsibility for changing investing habits lies with the firms, says Wen Zhenyu, a Beijing-based fund manager at ABN Amro Teda Fund Management Co.

"You still get salespeople marketing insurance products as speculative tools,'' Wen says. ``The funds industry has a lot to do to educate first its own sales force and then investors.''

Wang, the retired engineer, says he has no choice but to trust in funds.

"It's too late, my neck's in the noose,'' he says. "The markets are good right now, and I at least need to make back what my broker ran away with three years ago.''

(Photo source:Baidu/GuoTai JunAn Securities,The Securities Commission this week approved the sale of new equity funds for the first time since December.)